Special Needs Trusts

Special Needs Trusts are designed to benefit a person who is eligible to receive public assistance in a manner that does not interfere with their public benefits.  They are used to supplement the person’s lifestyle, rather than to provide for the essentials that are covered by public assistance.

There are different types of Special Needs Trust, but all have the same goal of ensuring that assets held by the Trust are not considered resources available to the beneficiary for purposes of determining the beneficiary’s financial eligibility for needs-based public assistance programs, such as Medicaid, Food Stamps, and Supplemental Security Income.  Special Needs Trusts must be carefully drafted to ensure that the beneficiary has no right to demand trust property, and that the trustee has full discretionary authority to make distributions as he sees fit.  A properly drafted Special Needs Trust will also avoid language that distributions may be made for “maintenance and support,” as this is counter to the purpose of the Trust.  Careful drafting of a Special Needs Trust is crucial so that it will not be considered as an available resource to the beneficiary.

One type of Special Needs Trust is a Self-Settled Trust, which means that the Trust is created by the person who will actually benefit from the Trust, using their own assets.  As of December 13, 2016 when the Special Needs Trust Fairness Act became law, a Special Needs Trust can be established directly by the person needing benefits, instead of just by a third party for their benefit.  Commonly known as a “(d)(4)(a)” Trust, this type of Trust must be irrevocable and may only be created by a person under the age of 65.  The (d)(4)(a) Trust must also include a Medicaid payback provision, meaning that any assets left in the Trust after the death of the beneficiary must be used to pay back the state for Medicaid benefits provided to the beneficiary.  If there are any funds remaining after the state is repaid, the Trust can specify contingent beneficiaries to inherit.

Another type of Self-Settled Special Needs Trust is a pooled trust or “(d)(4)(c)” Trust.  This is similar to a (d)(4)(a) Trust, except that a nonprofit company acts as the trustee, and the beneficiary’s assets are pooled with other disabled beneficiaries’ assets.

The other type of Special Needs Trust is a Third Party Trust, and is established by a third party such as a parent or other family member for the benefit of the person with the disability.  It cannot be funded with assets that belong to the beneficiary.  Although in many ways similar to a Self-Settled Trust, a main distinction is that a Third Party Trust is not required to include the Medicaid payback provision, so the grantor of the Trust can choose how to distribute any remaining assets after the death of the primary beneficiary.

Smith-Weiss Shepard & Kanakis, P.C. takes the confusion out of this complex matter to help you address the needs of loved ones who require it the most.